Oracle pays dividend early to beat Uncle Sam

Dec. 3, 2012
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Oracle headquarters in Redwood City, Calif. / Paul Sakuma, AP

by Matt Krantz, USA TODAY

by Matt Krantz, USA TODAY

Oracle is speeding up the payment of three dividend payments scheduled for 2013, the latest move by a company to avoid potentially higher taxes on dividends starting next year.

The database and business software company will be making its upcoming three dividends, worth 18 cents a share in total, by the end of the calendar year. That's a significant acceleration given that the payments were due to be paid in January, April and July 2013.

Oracle joins several big companies, including Costco and Wal-Mart, making either extra dividend payments in 2012 or pushing 2013 payments into this year. The move could save investors from paying higher tax rates on tens of millions of dollars in dividends if tax rates rise next year, as some expect. Taxes will return to 2000 levels if Congress doesn't come to an agreement by Dec. 31, which means dividends would be taxed at an individual's regular income tax rate.

During November, 228 companies announced plans to pay special one-time dividends by the end of the year, says S&P Capital IQ. That's up 217% from November 2011. "We're seeing an enormous number of them," says Howard Silverblatt of S&P Capital IQ.

The early payment is a big score for Oracle founder Larry Ellison, who is the company's largest shareholder with 1.1 billion shares. The next three dividend payments are worth $198.9 million for Ellison. The company said Ellison had no say in the decision to move up the dividend payment. But by moving up the payment, Ellison and all current Oracle shareholders stand to benefit.

While the move may have saved investors in taxes, the announcement was also a bit of a letdown, because it means Oracle isn't planning to pay a special one-time dividend, says Drake Johnstone of Davenport & Co.

Because the company has $31.6 billion in cash and short-term investments, and its 0.7% dividend yield is below what other large companies are paying, some might have liked to see a special payout. "It's not like they're paying you any more," he says. "They're just accelerating what's to be paid next year."

Many investors are busily prospecting for other companies that might pay dividends early or make special payments. But while there might be a one-time tax benefit from this, there's no real long-term benefit for stock prices, says Jack Ablin of Harris Private Bank.

"It's a smart tax idea," he says. "But how this is better for the valuation of a stock, that's not adding up to me."